What's causing mortgage-servicing errors, from misapplied payments to double-charging for homeowners' insurance?
At least part of the reason seems to be that the records aren't managed in a way that allows servicers to see everything about a loan's history in one place.
Maryland's Department of Labor, Licensing and Regulation saw this type of record-keeping problem again and again after launching an examination of servicers in the wake of robo-signing last fall. That inquiry is still in the works.
Anne Balcer Norton, deputy commissioner of financial regulation at the labor department, said the state found that piecing together the pre- and post-default story of even one borrower requires servicers to pull information from multiple databases, including some outsourced to other firms.
State examiners went back and forth with servicers for months to get documentation that could provide a full picture, she said. Some material was never provided, despite multiple requests, and "you have to assume it’s because it does not exist," Norton said.
She said the experience has been "very eye-opening."
"It really does call into question the accuracy of the record-keeping in general," said Norton, who emphasized that she was speaking specifically about the state's inquiry, not the overall effort by state attorneys general across the country. (That nationwide inquiry/settlement is still in the works, but you can see the leaked settlement proposal from March right here.)
Norton, who worked as general counsel to a mortgage lender and as the head of a local nonprofit's foreclosure-prevention team before joining the state, experienced a record-keeping problem from a consumer's point of view a year ago. It involved her homeowners' insurance.
If you don't have a policy in place, your lender will get one and charge you for it. Such "force-placed" insurance is much more costly than a regular policy -- 10 times pricier, in some cases.(Lenders say that's because it's usually purchased for homes whose borrowers are behind on payments, increasing the risk that the home will end up damaged. But critics say the cost is inflated by kickbacks -- making it harder for borrowers to get themselves current.)
Norton said her servicer notified her that she had no insurance coverage and it planned to force-place a policy. But she did have coverage.
"I had to call, find out what their records showed, insist on getting the name of the person I was talking to, getting their direct line, getting their direct fax, their email address, getting the policy, calling back to confirm," Norton said. "It took three tries before it was actually recorded. ... Every time you call, it was the same thing: 'We have no record of you having a policy.' OK, I'll do it again."
That's her advice to homeowners who run into problems: Be persistent. And while it might be very nice to hear someone say they'll take care of it, don't rely on that -- call back later to confirm.
This is culled from my reporting for this week's story about mortgage-servicing problems. You can read the story here.
Brian J. Casey, one of the homeowners featured in the story, has been been fighting to resolve a record-keeping nightmare for the past three years.
He said he got into a temporary cash crunch in 2008 when a client failed to pay his banking-consultancy business, putting him two months behind on his mortgage. So he was glad to accept a local bank's offer to refinance him into a loan that would save him $1,000 a month. But when he asked for a payoff statement from his servicer to close the deal, the servicer claimed he was farther behind on payments than his own records showed -- and told him it couldn't provide the loan history to back up its figures, he said.
"They formally told me by electronic mail, 'We don't have it,'" said Casey, whose servicer had at that point recently taken over his loan from a failing company. "Literally, 'We don't have the records.'"
One twist I couldn't fit into the main story: When the servicer said he was in default, it charged him not once but several times in October 2008 for force-placed insurance -- at $3,900 a pop -- even though his own $1,000-a-year insurance policy had already been paid up, Casey said. The servicer reversed the charges later without explanation, he said.
"The whole mortgage-finance industry is terribly flawed," Casey said.
On a related note:
Jim Kowalski, a consumer attorney in Florida who helped bring "robo-signing" to light (except he calls it "robo-perjury"), said some servicing problems are a result of the firms building walls around divisions that need to communicate. When the payment-processing department can't tell the foreclosure department to call off a sale because they’re using different computer platforms and don't talk to each other, for instance, borrowers fall through the cracks, he said.
"It's a rampant problem," said Kowalski, a former state prosecutor.